Sharing Economy Startups Are Not Tech Companies
*The author of this Article is Mohammad Albattikhi, founder of Bilforon, a company in BeyondCapital’s Startup Support Program.
The Uber of cooking, the Uber of house cleaning, the Uber of babysitting and the Uber of maintenance services are just few examples of many sharing or gig economy startups that emerged in 2016 and 2017. Tech entrepreneurs and investors are excited about this new model. They view it as a disruptive business model to big companies.
Sharing economy have a simple business oriented model. Entreprenerus entering this space develop a marketplace application to connect service providers with customers in exchange of a commission on every order.
Although entreprenuers try to capitalize on technology automation to reduce cost of operations and geographical expansion, the technology itself is neither advanced nor complicated.
I got excited about sharing economy after reading ‘The Innovator’s Solution’ by Clayton Christensen in 2013. Three years later, I founded Bilforon, a sharing economy application for selling home-cooked food.
In this article, I’m going to share with you the most valuable lesson I learned from managing Bilforon and talking with entreprenerus in the sharing economy space.
Most of us start with the same plan: (a) Create a marketplace app to connect customers with service providers, (b) Develop a fully automated technology to increase profitability and improve scalability and © Find a way to ensure customers and service providers will only communicate through the app.
While all the above are essential, they don’t touch the most important factor for creating a successful sharing economy platform.
Before discussing the most important thing, let me tell you about my first Uber experience. I was on a business trip in New York. I downloaded the app, ordered a cab and and got a ride. The car was very clean and the driver was polite. After I got off the car, I started recommending my friends and family to use Uber. I didn’t tell them to ride with John or Mike. I told them that Uber is great.
The same thing applies to Bilforon. After a new customers order food from a one of our home-cooks, they either say Bilforon is great or Bilforon is bad. They generalize one good experience from one home-cook to everyone or they generalize one bad experience from one home-cook to include all the home-cooks at the application.
We realized that one bad customer experience could make the customer delete the application forever. We will also be losing money on that order. The math is simple: Our customer acquisition cost (CAC) is $3, the average value of every order is $15 and our commission is 10%. On average, we made a revenue of $1.5 from every order. We needed each new customer to make 2 orders to breakeven with our marketing spending.
Last year, we focused our marketing strategy on separating people’s opinion of the home-cook from their opinion of the app and the technology. We feared one bad home-cook could make us lose customers.
Few months passed by and then the author of the first book that inspired me to start my first company, published another book called “Competing Against Luck”. It made me ask myself a very important question; what do people “hire” Bilforon to do? I believed that people are hiring Bilforon to connect them with home-cooks. I was wrong.
People are not choosing home-cooks listed on Bilforon over home-cooks listed on Instagram and Facebook because Bilforon has a long list of service providers organized in a beautiful way. People are hiring Bilforon to reduce all their stress factors. Some of the stressful questions that pop into people’s brains before making an order are “Will the food taste good?”, “Will it be clean?”, “Will it arrive on time?” and “Will it be fresh?”.
The same thing applies to Uber. Most of us will never ever ride in a stranger’s personal car. Some of the stress factor questions are “Will this person steal my money?” or even “Will I wake up in a bath top filled with ice and a missing kidney?”.
Sharing economy startups shouldn’t be technology driven. Their key for sucess is in quality management. Our job as sharing economy entreprenerus is to ensure great services and products are provided to customers from top quality service providers. There are four main areas of quality management that a sharing economy entrepreneur must pay attention to:
1- Quality Planning: Set quality standards, practices, resources and specifications. Quality planning should cover everything from the application process of accepting a service provider to join the app to the follow up calls to get customers’ feedback.
2- Quality Assurance: Prevent mistakes and defects by insuring a consistent customer experience by continuously monitoring and testing service providers products.
3- Quality Control: Provide tools for reviewing and rating service providers to ensure they’re always following the quality standards and practices.
4- Quality Improvement: Create a method to collect and analyze service providers’ performance and customers’ expectations to ensure continuous improvement of service.
Focusing on these areas will reduce your customers’ stress factors and make them trust that you only accept top quality service providers who follow top market standards. Even people who are not keen on using new technologies will have more courage to try using your app and service.
Although we’ve always provided high quality standards at Bilforon, it took us two years to realize that we’re not a technology company, a service company or a catering company. We’re in the quality management business.
*We’d like to thank Mohammad for giving us permission to share his article, which can also be found on his personal page here.
